RBI/2004-05/58

A.P.(DIR Series) Circular No.5

All Authorised Dealers in Foreign Exchange

Madam/Sirs,

Indo-Sri Lanka Credit Agreement dated March 23, 2004 for USD 25 Million

The Government of India have made available the third tranche of USD 25 million (U.S .Dollar Twenty five Million only) out of the line of credit of USD 100 Million extended to the Government of the Republic of Sri Lanka under the credit agreement entered into between the two Governments on January 29, 2001. An agreement to this effect has been signed by the two Governments on March 23, 2004. The credit of USD 25 million will be available to the Government of Sri Lanka for importing from India capital goods of Indian manufacture including original spare parts and accessories purchased together with the capital goods and included in the original contract as also consultancy services, consumer durables and food items - sugar, wheat flour, rice, red split lentils, wheat grains, which may be modified by way of additions, deletions or substitutions from time to time as may be mutually agreed upon between the two Governments. The credit will not cover third country imports. The export of goods and services from India and their import into Sri Lanka under the line of credit shall take place through normal commercial channels and will be subject to the laws and regulations in force in both the countries.

2. The broad terms and conditions of the line of credit are as under:

(a) All contracts will be subject to the approval of the Government of India and the Government of Sri Lanka or any agency authorised for this purpose by the Government of Sri Lanka and shall contain a clause to that effect. All contracts shall be sent to the Ministry of Finance, Department of Economic Affairs, Government of India, for approval. After each contract has been approved, intimation thereof will be sent to the Government of Sri Lanka and to the State Bank of India, New Delhi, by the Ministry of Finance, Government of India.

(b) The credit will cover 100 per cent f.o.b. value of the eligible goods and services to be exported from India. The value of the contract should be expressed in U.S. Dollars.

(c) All disbursements under the credit shall be made under letters of credit opened by banks in Sri Lanka. All letters of credit shall be advised by banks in Sri Lanka to the State Bank of India, New Delhi for onward transmission to the exporters either direct or through another bank in India, if any, nominated by the exporters. Normal commercial practices followed in respect of advising payments under letters of credit will be adopted. The letters of credit should be supported by a copy of the contract and should contain the following reimbursement clause:

"Reimbursement for the 100 per cent of the f.o.b. value of the contract shall be provided by the State Bank of India, New Delhi from USD 25 million credit extended by the Government of India to the Government of Sri Lanka. The letter of credit is negotiable after the State Bank of India has issued an advice that it is operative."

4. No agency commission should be allowed in respect of exports under this credit.

5. Shipments under the credit agreement should be declared on GR/SDF/SOFTEX Form as per instructions issued from time to time with prominent superscription reading "Exports to Sri Lanka under Credit Agreement dated March 23, 2004, between the Government of India and the Government of Sri Lanka". The number and date of this circular should be recorded on the GR/SDF/SOFTEX Form in the space provided therefor.

6. Authorised Dealers may bring the contents of this circular to the notice of their constituents engaged in exports to Sri Lanka and customers concerned.

7. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Chief General Manager